Under the exemption for trivial benefits an employer can provide their employees small benefits which will be exempt from tax as employment income providing that they fulfill the following conditions:
- The cost of providing the trivial benefit does not exceed £50, including vat (or the average cost per employee does not exceed £50 where the benefit is provided to a group of employees and it is impracticable to work out the exact cost per individual)
- The benefit is not cash or a voucher that can be converted into cash
- The employee is not entitled to the benefit as part of a contract of employment.
- The trivial benefit is not provided in recognition of services performed by the employee as part of their duties as an employee (or in anticpation of such services)
If the employer is a close company and the trivial benefit is provided to an individual who is a director, other office holder, or a member of their family, the benefit is capped at £300 per individual within the tax year.
Trivial Benefit Examples
At Christmas you provide each employee with a Turkey however those employees who are vegans can be given a store gift voucher which can be used to buy other items.
Providing that the gift voucher cannot be exchanged for cash this will be covered by the exemption.
Basically these gifts can be provided for any number of occassions (bear in mind those provided to directors of close companies do not exceed £300).
It would be worth making a list of any such occassions eg Birthdays, Christmas, New Year, Easter, an anniversary or a holiday.
Employer takes out a group of employees for a meal to celebrate a number of birthdays. Five employees attend the meal at a total cost to the employer of £230 including vat. Each individual chooses a different meal and drinks.
Rather than undertaking a detailed analysis of the bill it can be accepted that the cost of the benefit per head is £46 which means that the meal can be covered by the exemption as it doesnt exceed the trivial benefit limit.
If the employer purchases a number of £30 Magnums of Prosecco to give to each employee for ‘hitting our sales targets this month’ then that would be a reward for services and therefore subject to both tax and NI.
If the employer was to say that ‘As its Easter here is a bottle to drink over the Bank Holiday’ that would then be a trivial benefit
So what are the savings?
For directors ……well each director would have to pay £126 on £300 of additional salary (on the assumption that each is in the higher tax bracket) and the company would pay £41 of secondary class 1 NI so for each director a potential saving of £167 per annum.
The current legislation does not impose a limit on the number of trivial benefits that can be provided to an employee although if an employee was given, for example, a £50 benefit on every working day, this would almost certainly fall into the ‘reward for services’ rule.
HMRC’s draft guidance on this can be found here
This is a tremendous tax and NI free benefit and its well worth purchasing a stock of gift vouchers to be given out at any of the above occasions.